[Federal Register Volume 71, Number 18 (Friday, January 27, 2006)]
[Rules and Regulations]
[Pages 4518-4525]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-798]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 414

[CMS-1167-F]
RIN 0938-AN02


Medicare Program; Payment for Respiratory Assist Devices With Bi-
Level Capability and a Backup Rate

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Final rule.

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SUMMARY: This final rule clarifies that respiratory assist devices with 
bi-level capability and a backup rate must be paid as capped rental 
items of durable medical equipment (DME) under the Medicare program and 
not paid as items requiring frequent and substantial servicing (FSS), 
as defined in section 1834(a)(3) of the Social Security Act. Before 
1999, respiratory assist devices with bi-level capability (with or 
without a backup rate feature) were referred to as ``intermittent 
assist devices with continuous positive airway pressure devices'' under 
the Medicare program and in the Healthcare Common Procedure Coding 
System (HCPCS). This final rule responds to public comments received on 
a proposed rule published in the Federal Register on August 22, 2003, 
and finalizes the policy in that proposed rule. The rule will ensure 
that respiratory assist devices are consistently and properly paid 
under Medicare as capped rental items.

DATES: The provisions of this final rule are effective on April 1, 
2006.

FOR FURTHER INFORMATION CONTACT: Joel Kaiser, (410) 786-4499.

SUPPLEMENTARY INFORMATION: 

I. Background

A. Legislative Authority for Payment for Durable Medical Equipment 
(DME)

    Section 1834(a) of the Social Security Act (the Act) sets forth the 
payment methodology and requirements for payment for the purchase or 
rental of new and used durable medical equipment (DME) for Medicare 
beneficiaries under Medicare Part B (Supplementary Medical Insurance). 
In accordance with section 1834(a) of the Act, payment for DME is made 
on a fee schedule basis. Each item of DME that is paid under Medicare 
Part B is classified into one of the following payment categories:
    <bullet> Inexpensive or other routinely purchased DME.
    <bullet> Items requiring frequent and substantial servicing (FSS).
    <bullet> Customized items.
    <bullet> Oxygen and oxygen equipment.
    <bullet> Other covered items (other than DME).
    <bullet> Other items of DME (capped rental (CR) items).
    Each category has its own unique payment rules. With the exception 
of customized items, for each item of DME that is identified by a code 
in the Healthcare Common Procedure Coding System (HCPCS), a fee 
schedule amount is calculated. The Medicare payment amount for a 
customized item of DME is based on the Medicare carrier's individual 
consideration of that item.
    Section 1834(a) of the Act provides that Medicare payment for DME 
is equal

[[Page 4519]]

to 80 percent of the lesser of the actual charge for the item or the 
fee schedule amount for the item. In general, the fee schedule amounts 
for DME are calculated on a statewide basis using average Medicare 
payments made in each State from 1986 and 1987 under the former 
reasonable charge payment methodology. The fee schedule amounts are 
generally adjusted annually by the change in the Consumer Price Index 
for All Urban Consumers (CPI-U) for the 12-month period ending June 30 
of the preceding year. The fee schedule amounts are limited by a 
ceiling (upper limit) and floor (lower limit) equal to 100 percent and 
85 percent, respectively, of the median of the statewide fee schedule 
amounts.
    Implementing regulations for these statutory provisions are located 
in 42 CFR part 414, subpart D.

B. Issuance of Proposed Rulemaking

    On August 22, 2003, we published in the Federal Register (68 FR 
50735) a proposed rule to clarify that one of the items of DME, a 
respiratory assist device with bi-level capability and a backup rate, 
must be paid as a CR category item under the Medicare program and not 
paid as an item that requires FSS. As explained below, we issued this 
proposal to correct coding and payment errors that have been made by 
some Medicare contractors that misinterpreted our statutorily 
prescribed policy and allowed respiratory assist devices to be paid 
under the category for items requiring FSS. In the August 22, 2003 
proposed rule, we proposed to include respiratory assist devices billed 
using HCPCS codes K0533 and K0534 in the DME fee schedule payment 
category for other items of DME, or capped rental items, as defined in 
section 1834(a)(7) of the Act. We proposed that rental claims received 
on or after the effective date of the final regulation would be 
considered claims for the initial month of rental for capped rental 
payment purposes.
    A summary of the public comments we received on the proposed rule 
and our responses to those comments appear under section III of this 
preamble.

II. Payment for Ventilators as DME Under Medicare

A. Payment Methodology

    Under section 1834(a) of the Act, payment may be made under 
Medicare Part B for various types of ventilators as items of DME. 
Section 1834(a)(3) of the Act, as amended, provides for payment for 
covered items of DME requiring frequent and substantial servicing such 
as intermittent positive pressure breathing (IPPB) machines and 
ventilators, excluding ventilators that are either continuous positive 
airway pressure (CPAP) devices or intermittent assist devices with CPAP 
devices (now referred to as respiratory assist devices), to avoid risk 
to the patient's health. Payment for an item in the FSS category is 
made on a monthly rental basis, and rental payments continue as long as 
the item remains medically necessary for the beneficiary. Section 
414.222 of our regulations implements the payment provisions for the 
types of items of DME that are paid under the FSS category. Ventilators 
that are excluded from the FSS payment category are paid in accordance 
with section 1834(a)(7) of the Act under the CR category on a rental 
basis. Section 414.229 of the regulations implements the payment 
provisions relating to items of DME that are paid under the CR 
category. Payment for an item in the CR category is made on a monthly 
rental basis. During the 10th rental month, the supplier is required to 
offer the beneficiary the option to take over ownership of the item. If 
the beneficiary chooses this option, Medicare rental payments end after 
the 13th month of use and the title for the equipment transfers from 
the supplier to the beneficiary. After the title for the equipment has 
transferred to the beneficiary, Medicare will make payments for any 
necessary maintenance and servicing of the patient-owned equipment. If 
the beneficiary chooses to continue renting the equipment, Medicare 
rental payments end after the 15th month of use, the supplier continues 
to own the equipment, and the supplier must continue to supply the item 
to the beneficiary until the medical necessity ends or Medicare 
coverage ceases. Beginning 6 months after the 15th month of use, the 
supplier may bill and receive a semiannual maintenance and servicing 
payment in an amount not to exceed 10 percent of the purchase price for 
the equipment as determined in accordance with the statute and Sec.  
414.229(c). These maintenance and servicing payments are made 
regardless of whether maintenance and servicing were actually performed 
on the equipment during the 6-month period. Total Medicare payments 
made through the 13th and 15th months of rental equal 105 and 120 
percent, respectively, of the statutory purchase price of the 
equipment.
    Suppliers of DME must meet the standards specified in regulations 
at Sec.  424.57. These standards specify that the supplier ``must 
maintain and replace at no charge or repair directly, or through a 
service contract with another company, Medicare-covered items it has 
rented to beneficiaries.'' This requirement applies to items in both 
the FSS and CR payment categories. Therefore, for rental items in 
either category, the supplier is responsible for ensuring that the 
equipment is in good working order. In the case of an item for which 
the beneficiary has selected the purchase option, the patient arranges 
for the servicing and repair of the patient-owned equipment. Medicare 
payments are made as needed for maintenance and servicing of patient-
owned equipment in the CR category.

B. Legislative Change Relating to Types of Ventilators Payable Under 
the FSS Category

    Section 13543 of the Omnibus Budget Reconciliation Act of 1993 
(OBRA of 1993) (Pub. L. 103-66) amended section 1834(a)(3)(A) of the 
Act by establishing two exceptions to the previously existing statutory 
authority that all ventilators were classified as items requiring FSS 
for Medicare DME payment purposes. One category of ventilators that are 
excluded from the FSS payment category is ``intermittent assist devices 
with continuous positive airway pressure devices,'' now referred to 
under the Medicare program as respiratory assist devices. The 
legislative history of the House Report accompanying H.R. 3545 (H.R. 
Conf. Rep. 103-213, 1993 U.S.C.C.A.N. 1088 at 703 (1987)) states that 
the FSS ``category is intended to include items which require frequent 
servicing in order to avoid imminent danger to a beneficiary's 
health.'' As a result of this legislative amendment, ventilators that 
are excluded from the Medicare DME FSS payment category fall into the 
DME payment category of CR items.

C. HCPCS Coding for Intermittent Assist Devices

    Effective January 1, 1992, code E0452 with the description of 
``intermittent assist device with continuous positive airway pressure 
device (CPAP)'' was added to the HCPCS. This code was added to describe 
respiratory assist devices with bi-level air pressure capability, with 
or without a backup rate, and with the ability to switch to CPAP mode. 
Bi-level pressure capability means that the device can deliver a lower 
level of pressure when the patient exhales than when the patient 
inhales, as opposed to CPAP, which is the continuous delivery of a 
single level of positive air pressure. A backup rate feature enables 
the device to automatically switch between the two

[[Page 4520]]

levels of pressure at predetermined intervals. The original 
manufacturer of bi-level respiratory assist devices submitted 
documentation to us as part of our HCPCS coding recommendation. The 
manufacturer stated the following in the documentation:
    <bullet> The word ``intermittent'' refers to devices that are 
designed to be used by the patient for only part of the day, usually 
during the hours of sleep.
    <bullet> The bi-level equipment requires very little maintenance 
and servicing.
    <bullet> Other than monthly replacement of the air inlet filter on 
the front of the system, there is no routine maintenance required.
    The manufacturer recommended that a performance verification be 
performed after each year of operation to ensure that the device is 
functioning properly.
    The nomenclature for code E0452, intermittent assist device with 
continuous positive airway pressure (CPAP) device, was established to 
describe positive airway pressure devices with bi-level capability, 
with or without a backup rate feature. The term ``respiratory assist 
device'' is used today to refer to this exact same group of items. As 
indicated earlier, in accordance with OBRA of 1993, intermittent assist 
devices or respiratory assist devices are excluded from the FSS payment 
category for DME and are classified under the CR payment category under 
Medicare.
    Effective January 1, 1992, code E0453 with the description of 
``therapeutic ventilator; suitable for use 12 hours or less per day'' 
was added to the HCPCS. This code was added to describe ventilators 
that are used on a part-time basis by patients who are dependent on 
stationary ventilators (HCPCS code E0450) for more than 12 hours a day. 
The premise behind the therapeutic ventilator (code E0453) is similar 
to portable oxygen equipment. The stationary ventilator (code E0450), 
like stationary oxygen equipment, would be the primary equipment used 
by the patient. The portable therapeutic ventilator, like portable 
oxygen equipment, would be used part of the day by the patient to move 
about in order to exercise muscles, prevent decubitus ulcers, and 
achieve other therapeutic goals. Therapeutic ventilators were properly 
classified in the FSS payment category because they were not one of the 
types of ventilators (CPAPs or intermittent assist devices) excluded 
from this category by OBRA of 1993.

D. Billing for Intermittent Assist Devices With a Backup Rate

    Beginning as early as May 25, 1992, some Medicare carriers issued 
erroneous guidance to suppliers that intermittent assist devices with a 
backup rate should be billed to Medicare using HCPCS code E0453 for 
therapeutic ventilators (in the FSS payment category) instead of HCPCS 
code E0452, the code category established for intermittent assist 
devices (in the CR payment category). We are not certain to what extent 
carriers and suppliers were using code E0453 as opposed to code E0452 
to bill for intermittent assist devices with a backup rate. However, 
this practice continued to some extent through 1993 and 1994, the years 
in which the OBRA of 1993 change in payment categories for intermittent 
assist devices was, respectively, enacted and implemented. 
Responsibility for processing DME claims was transferred during this 
time from 34 local carriers to 4 regional carriers known as Durable 
Medical Equipment Regional Carriers (DMERCs). The DMERCs also issued 
erroneous guidance to suppliers that intermittent assist devices with a 
backup rate should be billed using code E0453 instead of code E0452.
    The classification of intermittent assist devices or respiratory 
assist devices with a backup rate under the FSS payment category versus 
the CR payment category results in a substantial increase in Medicare 
payments. Total Medicare payments for one device furnished to one 
patient under the FSS payment category would be as much as $38,530 
after 5 years as opposed to $12,201 if the device were classified under 
the CR payment category.\1\ This difference in costs highlights the 
fact that the correct classification of these devices for Medicare 
payment purposes is a significant issue in terms of safeguarding the 
Medicare Trust Fund.
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    \1\ The CR payment includes 15 monthly rental payments plus 7 
payments for maintenance and servicing that can be billed every 6 
months beginning 6 months after the 15th rental payment has been 
made.
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    In 1998, for the first time, the DMERCs conducted an in-depth 
review of the use of intermittent assist devices and issued proposed 
medical review policies that included a recommendation to revise the 
nomenclature for the HCPCS codes for these devices. The term 
``respiratory assist device, bi-level pressure capability'' was 
proposed to replace the HCPCS wording of ``intermittent assist device 
with continuous positive airway pressure (CPAP),'' and separate HCPCS 
codes were proposed to differentiate between devices with a backup rate 
and devices without a backup rate.

E. Public Meeting on Payment for Respiratory Assist Devices

    During the course of reviewing the DMERC medical review policies on 
intermittent assist devices (now referred to as respiratory assist 
devices), we became aware that the carriers and DMERCs had been 
allowing HCPCS code E0453 to be used primarily for the billing of 
respiratory assist devices with a back-up rate. As a result, we 
intended to take action to clarify that these respiratory assist 
devices belonged in the CR payment category. Because of concerns raised 
by the industry on the appropriate coding and payment classification 
for these devices, we announced in the Federal Register on June 4, 1999 
(64 FR 30042) the convening of a public meeting on June 25, 1999, to 
obtain input from the supplier community regarding the appropriate DME 
payment category for respiratory assist devices with a backup rate. We 
made presentations at the June 25, 1999 public meeting. Representatives 
of the Food and Drug Administration (FDA) and the National Institutes 
of Health, respiratory assist device manufacturers, suppliers, 
clinicians, beneficiaries, and others also made presentations at the 
meeting.
    Testimony was given at the public meeting to support the claim that 
there is a need for FSS of respiratory assist devices with bi-level 
capability and a backup rate. Speakers described the need to have a 
respiratory therapist visit the beneficiary to make sure that the 
device is being used appropriately by the beneficiary and that the 
beneficiary is complying with the treatment regimen. The testimony 
pointed out that after the respiratory therapist performs an assessment 
of the beneficiary and has consulted with the beneficiary's physician, 
it may be determined that the pressure setting on the equipment needs 
to be adjusted. However, no information was presented at the public 
meeting that would indicate that the equipment itself requires FSS, as 
required by section 1834(a)(3)(A) of the Act.
    The DMERC medical review policies on respiratory assist devices 
were implemented on October 1, 1999. The following HCPCS codes were 
added as part of these new policies:
    <bullet> K0532 Respiratory Assist Device, Bi-Level Pressure 
Capability, Without Back-Up Rate Feature, Used With Noninvasive 
Interface, E.G., Nasal Or Facial Mask (Intermittent Assist Device

[[Page 4521]]

With Continuous Positive Airway Pressure Device)
    <bullet> K0533 Respiratory Assist Device, Bi-Level Pressure 
Capability, With Back-Up Rate Feature, Used With Noninvasive Interface, 
E.G., Nasal Or Facial Mask (Intermittent Assist Device With Continuous 
Positive Airway Pressure Device)
    <bullet> K0534 Respiratory Assist Device, Bi-Level Pressure 
Capability, With Back-Up Rate Feature, Used With Invasive Interface, 
E.G., Tracheostomy Tube (Intermittent Assist Device With Continuous 
Positive Airway Pressure Device)
    These codes were added to better describe those respiratory assist 
devices, or intermittent assist devices, that had been coded under 
codes E0452 and E0453 of the HCPCS since 1992. Code K0532 describes 
those intermittent assist devices that did not have a backup rate and 
were previously coded under code E0452 (the CR payment category). Codes 
K0533 and K0534 describe those intermittent assist devices that did 
have a backup rate, but had been coded under code E0453 (the FSS 
payment category). It was also decided that no code was needed for 
therapeutic ventilators, the devices originally intended to fall under 
code E0453. Although the DMERC medical review policies were implemented 
on October 1, 1999, we delayed our decision regarding the appropriate 
DME payment category for devices with the backup rate (codes K0533 and 
K0534) to allow more time for consideration of comments made at the 
June 25, 1999 public meeting. Since that time, code numbers K0532, 
K0533, and K0534 have been replaced in the HCPCS by code numbers E0470, 
E0471, and E0472, respectively.
    After reviewing all of the information presented at the June 25, 
1999 public meeting, we concluded that respiratory assist devices with 
bi-level pressure capability and a backup rate do not require FSS 
payment. We also concluded that these devices are a type of 
intermittent assist device with CPAP and, therefore, are excluded from 
the FSS payment category by section 1834(a)(3)(A) of the Act. We 
concluded that all payments made for these devices in the past under 
the FSS payment category were erroneous.
    As a result of these conclusions (and in conjunction with the 
findings of the 1999 OIG report discussed in section II.F of this 
preamble), we issued the August 22, 2003 proposed rule. As noted above, 
the only regular servicing necessary for these devices is changing the 
filter once a year; thus, we believe that it is not necessary for a 
respiratory therapist to perform the maintenance and servicing of 
respiratory assist devices. If DME suppliers perform maintenance and 
servicing of equipment, Medicare pays for this service, regardless of 
whether the item is in the FSS or the CR category. At the time that we 
issued the proposed rule, we were confident that this change in payment 
category would not result in a decrease in the current level of service 
being provided to Medicare beneficiaries. After consideration of all 
comments, we have maintained the proposed provisions in this final 
rule.

F. Office of Inspector General (OIG) Report on Respiratory Assist 
Devices

    As we explained in the August 2003 proposed rule, in 1999, the OIG 
began an inspection to determine if respiratory assist devices with a 
backup rate receive frequent and substantial servicing. To assess 
whether devices received frequent and substantial servicing, the OIG 
reviewed a stratified random sample of Medicare claims and associated 
supplier records. The OIG also conducted surveys of beneficiaries, 
suppliers, manufacturers, and accreditation agencies. In June 2001, the 
OIG issued its report on respiratory assist devices with a backup rate 
(OEI-07-99-00440) and recommended that these devices be moved from the 
FSS payment category to the CR payment category. The OIG made its 
recommendation based on information gathered from the surveys it 
conducted. The OIG included the following findings in its report:
    <bullet> Supplier services consist primarily of routine maintenance 
and patient monitoring.
    <bullet> For most beneficiaries, actual supplier visits do not meet 
the suppliers' own protocols or recommendations for frequency of visits 
that are developed in the absence of official guidelines regarding the 
number of visits that are necessary for the device.
    <bullet> Contrary to supplier protocols, the number of 
beneficiaries receiving visits declines over time.
    <bullet> Covering the respiratory assist device with backup rate in 
the capped rental category would have saved Medicare $11.5 million 
annually.
    Therefore, the OIG, after conducting a detailed inspection, 
determined that respiratory assist devices with a backup rate do not 
receive FSS.

III. Public Comments Received on the Proposed Rule and Departmental 
Responses

    We received 15 timely pieces of correspondence containing multiple 
comments on the August 22, 2003 proposed rule. A summary of these 
public comments and the Department's responses to those comments 
follow:
    Comment: All of the commenters opposed the proposed change in the 
Medicare payment category for respiratory assist devices with backup 
rate capability (HCPCS code K0533 or E0471) from the FSS category to 
the CR category. Some commenters viewed the proposed change as a 
reduction in payment rather than a correction of a coding error and 
requested withdrawal of the proposal because the rationale was 
unsupportable. The commenters stated that the alleged payment error 
originally occurred when, they believe, CMS incorrectly relabeled what 
the industry now refers to as bi-level ventilators or noninvasive 
positive pressure ventilators (NPPVs) as respiratory assist devices. 
The commenters indicated that the term ``respiratory assist device'' is 
ambiguous and its use is inconsistent with current practice, with 
medical literature, and with the FDA classification of these devices. 
The commenters pointed out that the FDA classifies NPPVs as ventilators 
and, as such, their purpose and function require monitoring and 
servicing to avoid risk to the patient's health, and, thus, 
classification under the Medicare FSS payment category. The commenters 
added that Medicare payment policy is the only area where these 
ventilators are referred to as ``respiratory assist devices.''
    Response: Respiratory assist devices with bi-level capability and a 
backup rate, or NPPVs as they are referred to by suppliers and 
manufacturers of these devices, are a type of intermittent assist 
device with CPAP and, therefore, are excluded from the FSS payment 
category by law. CPAP devices and intermittent assist devices with CPAP 
are indeed referred to as ventilators in the statute, but are 
nonetheless excluded from the FSS category under section 1834(a)(3) of 
the Act. This statutory provision does not allow us to exempt certain 
types of intermittent assist devices (that is, those with backup rate 
features). The terms ``intermittent assist device'' and ``respiratory 
assist device'' describe the same general category of bi-level positive 
airway pressure device technology that was brought onto the market 
under the trade name of BiPAP[supreg] and that still exists today. 
While some bi-level devices include a backup rate feature and some do 
not, the term ``intermittent assist devices'' was developed for HCPCS 
code E0452 to describe all bi-level devices, and this is the statutory 
language that was used to exclude

[[Page 4522]]

certain ventilators from the FSS payment category. Therefore, the law 
requires this change.
    We note that FDA classification of devices for the purpose of 
clearing products for market distribution does not determine Medicare 
coverage and payment rules or our policy development. Likewise, our 
definitions and classification of devices under the Medicare program 
have no direct effect on FDA classification of drugs and devices. The 
process of clearing devices for marketing and determining coverage and 
payment of devices under Medicare are two different programs with 
different parameters.
    Comment: A number of commenters stated that CMS does not have the 
legal authority under the plain meaning of the language in the statute 
to change the payment category for NPPVs or respiratory assist devices 
with bi-level capability and backup rate. In addition, they believed 
CMS is taking too narrow a view of the term ``servicing'' in the 
language of the 1993 statutory amendments to the Act and the 
legislative history. The commenters stated that the House Report 
language clarifies that ``frequent and substantial servicing'' refers 
more broadly to the servicing, monitoring, and adjustments needed to 
make certain that these ventilators are both functioning properly and 
being used properly by the patient, not just to the equipment itself. 
Further, one commenter indicated that the House Report further states 
that these items are typically quite expensive and often subject to 
relatively rapid technological changes. Therefore, the commenters 
pointed out, NPPV ventilators fit the statutory definition for the FSS 
payment category.
    Response: As indicated above, respiratory assist devices with bi-
level capability and a backup rate, or NPPVs as they are referred to by 
suppliers and manufacturers of these devices, are a type of 
intermittent assist device with CPAP and, therefore, are excluded from 
the FSS payment category by section 1834(a)(3) of the Act. This 
statutory provision does not allow us to exempt certain types of 
intermittent assist devices (that is, those with backup rate features). 
Therefore, we do not have the discretion to place these items in the 
FSS category. Even assuming arguendo that the items did require 
frequent and substantial servicing, which we believe they do not, based 
on information we have received, including the OIG report on this 
subject, the law excludes them from this category of items.
    Comment: A number of commenters suggested that if CMS wanted to 
take corrective action against suppliers who are noncompliant with 
established protocols pertaining to the FSS category, the better 
approach would be to sanction those providers for inappropriate or 
fraudulent billing practices, not to reduce payments for the devices. 
Another commenter who agreed with the OIG report believed that CMS must 
protect beneficiaries and take action when suppliers of DME fail to 
properly set up, adjust incrementally, and provide careful followup on 
the use of the equipment. The commenter believed that corrective action 
would be proper, but disagreed with the lowering of the payment for the 
services needed.
    Response: Section 1834(a)(20) of the Act, as added by section 
302(a) of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (Pub. L. 108-173), requires us to establish 
quality standards for suppliers of DME, including respiratory assist 
devices, to be applied by recognized independent accreditation 
organizations. We expect to implement this statutory provision in the 
near future, at which point suppliers of respiratory assist devices 
will not be allowed to bill Medicare for furnishing these devices if 
they do not meet the established quality standards. In addition, we 
will continue to implement and refine our procedures for identifying 
and sanctioning fraudulent and abusive suppliers under Medicare.
    With regard to the lowering of overall Medicare payments for the 
device that would result from implementation of this rule, it is not 
the intent of this rule to lower payments in order to take corrective 
action against suppliers who fail to provide necessary services. This 
rule would place respiratory assist devices with bi-level capability 
and a backup rate feature in the CR category in order to comply with 
section 1834(a)(3) of the Act.
    Comment: Several commenters believed that the OIG study 
investigating the impact of the proposed policy was flawed in design, 
interpretation of results and conclusions, and they challenged the four 
major findings cited in the proposed rule (see also section II.D of 
this final rule). The commenters believed that there were (1) 
Inconsistent interpretation of the statute and intent of the Congress; 
(2) disregard for FDA's regulatory classification of NPPVs as 
ventilators; (3) conclusions regarding the nature and frequency of 
services to patients using NPPVs that are inconsistent with the 
underlying data (data that they believed were incorrect and 
misleading); and (4) recommendations that were in conflict with 
published medical views of NPPVs that pose health risks and prevent 
access to devices by beneficiaries.
    Response: The overriding issue addressed by the proposed rule and 
this final rule is the fact that the statute excludes intermittent 
assist devices or respiratory assist devices from the FSS category. 
Although the OIG report indicates that suppliers of respiratory assist 
devices are not performing frequent and substantial servicing of the 
devices, the report itself cannot affect the legal mandate to exclude 
these items from the FSS payment category.
    Comment: A number of commenters recommended that CMS establish a 
standard for payment of respiratory care services for patients who 
require the use of NPPV, as well as guidelines specific to ventilator 
treatment of patients with amyotrophic lateral sclerosis (ALS). The 
commenters believed that switching NPPV to the category of capped 
rental items without simultaneously covering the cost of respiratory 
care services that the comments state that ventilator dependent 
patients need would eliminate followup care by clinical personnel for 
these patients and would endanger the lives of many patients who suffer 
from respiratory insufficiency due to such diseases as ALS and post-
polio syndrome.
    Response: As mentioned in an earlier response, section 1834(a)(20) 
of the Act, as added by section 302(a) of Public Law 108-173, requires 
us to establish quality standards for suppliers of DME, including 
respiratory assist devices, to be applied by recognized independent 
accreditation organizations. We expect to implement this provision in 
the near future.
    With regard to the services of a respiratory therapist and other 
clinical services related to the care of a patient using a respiratory 
assist device, these services do not fall within the scope of the DME 
benefit. The overall clinical care of a beneficiary who receives DME is 
the responsibility of the beneficiary's treating physician. Therefore, 
payment under the DME benefit does not include payment for the clinical 
services of a respiratory therapist or other clinicians that relate to 
the care of the patient. Further clarification of this issue will be 
provided through the DME supplier quality standards.
    Comment: A number of commenters believed that the proposed change 
(1) would have a significant adverse impact on beneficiaries' access to 
ventilator therapy (for people with neuromuscular diseases such as ALS, 
post-polio syndrome, and multiple sclerosis); (2) would jeopardize the 
health and safety of disabled beneficiaries with neuromuscular 
diseases; and (3) would

[[Page 4523]]

create additional costs to the Medicare program through an increase in 
the number of hospitalizations and urgent care visits. Some of the 
commenters believed that these issues were not adequately addressed in 
the proposed rule, despite their presentation at the 1999 public 
meeting.
    Commenters acknowledged that there is no provision in the Medicare 
statute that authorizes coverage and payment for services of a health 
care professional who provides ``hands-on'' care for a home ventilator 
patient. However, the commenters pointed out that, in the real world, a 
professional who is attempting to provide FSS to the equipment 
invariably also interacts with and may provide care to the patient, a 
service that would be eliminated if the category payment change is 
made. One commenter indicated that loss of payment resulting from the 
change in payment category means loss of service to needy individuals.
    Response: The proposed rule and this final rule pertain only to 
respiratory assist devices, not to ventilator therapy. They do not 
affect coverage of ventilators, which continue to be covered under the 
DME benefit. We disagree that the proposed rule and this final rule 
will significantly affect beneficiary access to respiratory assist 
devices. The law requires that intermittent assist devices or 
respiratory assist devices be excluded from the DME FSS payment 
category under Medicare. We believe the payments for these respiratory 
assist devices as capped rental items will cover the costs of medically 
necessary equipment and services.
    Comment: One commenter pointed out that a DME company has no 
obligation to provide any services for a beneficiary who selects the 
purchase option and that this creates a hazard to some beneficiaries. 
The commenter added that it will not be cost-effective to provide 
necessary services to beneficiaries with severe respiratory problems if 
the device is moved to the CR payment category.
    Response: We do not believe that the provisions of the proposed 
rule and this final rule will create a hazard for beneficiaries. 
Medicare will make rental payments for respiratory assist devices as 
DME under the provisions of the statute and will make payments for any 
necessary maintenance and servicing of patient-owned equipment if the 
beneficiary selects the purchase option during the 10th rental month of 
the 15-month rental. In addition, as we have indicated earlier, we are 
in the process of developing rules that will establish quality 
standards for suppliers of DME, including respiratory assist devices, 
to be applied by recognized independent accreditation organizations. 
These standards will implement provisions of section 1834(a)(20) of the 
Act as added by section 302(a) of Pub. L. 108-173.
    Comment: A number of commenters believed that the proposed rule 
would have a disproportionate adverse economic effect on small 
businesses, given the estimated significant reductions in payments that 
would occur if the proposed rule were finalized, that is, a 78-percent 
reduction in payments over a 5-year period. The commenters pointed out 
the limited number of suppliers of NPPV ventilators nationally and 
that, of the top 30 suppliers cited by CMS in the proposed rule, 83 
percent are probably small businesses. The commenters agreed with CMS' 
assessment in the proposed rule that the top 30 suppliers account for 
50 percent of the use of code K0533 and that 5 of these suppliers 
account for 40 percent of expenditures for the code. One commenter 
indicated that as a result of the revised DMERC policy, many companies 
have already stopped offering respiratory assist services. This 
commenter believed that most companies would not offer to provide NPPV 
at all under the proposed change in the payment category.
    Response: We agree that some small suppliers may be adversely 
affected by this rule. However, given that the current monthly fee 
schedule ceiling for this device is $642.17 and is very generous 
compared to the monthly fee schedule ceiling of $256.60 for the device 
without the back-up rate feature, we do not believe that many of the 
current suppliers of respiratory assist devices will be significantly 
affected. In addition, we do not anticipate problems with beneficiary 
access to respiratory assist devices as a result of this rule given 
this generous payment schedule. We refer readers to a further 
discussion of the impact of this final rule on small suppliers in 
section VI of this final rule.
    Comment: One commenter believed that the rapid rise in Medicare 
expenditures for use of ventilators was due to the fact that the 
benefits of NPPV were relatively unknown until 1995, not to the misuse 
of the device and coding. The commenter indicated that CMS also failed 
to consider the cost savings from decreased hospitalizations among the 
groups of patients receiving NPPVs.
    Response: The reasons for the growth in expenditures for 
respiratory assist devices are not relevant to this final rule. The law 
requires that these devices be excluded from the DME FSS payment 
category under Medicare.
    Comment: One commenter believed that CMS failed to meet the 
statutory requirement to analyze options for regulatory relief under 
the Regulatory Flexibility Act when over half of the small businesses 
would be seriously impacted by the proposed rule (16 of 25). The 
commenter wanted to know where and how it could seek relief. This 
commenter also disagreed with CMS' determination that the costs and 
benefits of the proposed rule would be economically insignificant, that 
is, less than $100 million.
    Response: The statute specifically excludes intermittent assist 
devices (now referred to as respiratory assist devices) from the DME 
FSS payment category under Medicare. The only relief from this 
statutory exclusion would be a legislative change. As we discuss in 
detail under section VI of this preamble, we estimate that this final 
rule will result in total expenditures of less than the $100 million 
threshold per year defined in the Executive Order as economically 
significant.

IV. Provisions of the Final Rule

    After consideration of the public comments received, we are 
adopting as final the proposed clarification of the payment category 
policy for respiratory assist devices under Medicare Part B. In this 
final rule, we are specifying that respiratory assist devices with bi-
level capability and a backup rate must be paid as capped rental items 
under the Medicare program and not paid as items requiring frequent and 
substantial servicing. In cases where beneficiaries are currently 
receiving these items, the capped rental period will begin for claims 
with dates of service on or after April 1, 2006.

V. Collection of Information Requirements

    This final rule does not impose information collection and 
recordkeeping requirements. Consequently, it does not need to be 
reviewed by the Office of Management and Budget under the authority of 
the Paperwork Reduction Act of 1995.

VI. Regulatory Impact Statement

    We have examined the impacts of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.

[[Page 4524]]

A. Executive Order 12866

    Executive Order 12866 (as amended by Executive Order 13258, which 
merely reassigns responsibility of duties) directs agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year). 
Based on the OIG study (OEI-07-99-00440), moving these devices to the 
CR payment category will result in annual savings of approximately 27 
percent. Based on 2004 expenditures of approximately $70 million for 
this device, below are the estimated 5-year savings for this 
regulation.

------------------------------------------------------------------------
                                                             Savings *
                       Fiscal year                           (million)
------------------------------------------------------------------------
2006....................................................              $0
2007....................................................              20
2008....................................................              20
2009....................................................              20
2010....................................................              20
------------------------------------------------------------------------
* Rounded to the nearer $10 million.

Since we estimate that this final rule will result in reductions in 
total expenditures of less than $100 million per year, this final rule 
is not a major rule as defined in Title 5, United States Code, section 
804(2) and is not an economically significant rule under Executive 
Order 12866.

B. Regulatory Flexibility Analysis

    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and government agencies. 
Most hospitals and most other providers and suppliers are small 
entities either because of their nonprofit status or because they have 
revenues of $6 million to $29 million or less in any 1 year. For 
purposes of the RFA, approximately 98 percent of suppliers of DME and 
prosthetic devices are considered small businesses according to the 
Small Business Administration's (SBA) size standards. Individuals and 
States are not included in the definition of a small entity. We 
estimate that 106,000 entities bill Medicare for DME, prosthetics, 
orthotics, surgical dressings, and other equipment and supplies each 
year. We believe the impact on the DME industry and small businesses in 
general will be minimal because most companies supply more than this 
one type of equipment. We estimate that total Medicare expenditures for 
DME are approximately $7 billion per year.
    As indicated above, we estimate that the overall impact on Medicare 
revenue associated with moving respiratory assist devices with a backup 
rate to the CR payment category will be payment reductions that range 
from approximately $15 million in FY 2005 to $45 million in FY 2009. 
Therefore, the overall impact on the total industry annual receipts 
will be small, that is, less than a 1-percent reduction in Medicare 
revenue. However, while the overall impact is small, some suppliers 
will be seriously affected as a result of the mix of DME that they 
furnish to Medicare beneficiaries. Namely, suppliers who specialize in 
furnishing respiratory assist devices will be seriously affected by 
this final rule. We have reviewed data from the statistical analysis 
conducted by DMERCs for the top 30 suppliers of respiratory assist 
devices with backup rate that were furnished during the period of 
October through December 2003 and billed using HCPCS code K0533. These 
suppliers accounted for over 66 percent of the total allowed charges in 
that quarter for code K0533. For these suppliers, the percentage of 
total DME allowed charges that were made up by allowed charges for code 
K0533 was 22.5 percent on average. The top 3 DME suppliers of code 
K0533 accounted for over 50 percent of the total allowed charges for 
code K0533 and are not small suppliers based on Medicare allowed 
charges attributed to these suppliers. For these 3 suppliers, the 
percentage of total DME allowed charges that were made up by allowed 
charges for code K0533 ranged from 1.4 percent to 2.9 percent. All but 
one of the other 30 suppliers would be considered small suppliers based 
on Medicare allowed charge data alone (we are not certain what revenue 
sources these entities may have other than Medicare). The percentage of 
total DME allowed charges that were made up by allowed charges for code 
K0533 was over 50 percent for only 6 of the top 30 suppliers, and the 
total allowed charges for code K0533 that were associated with these 6 
suppliers accounted for only 4.4 percent of total allowed charges for 
code K0533 during that quarter. Based on these data, we conclude that 
most small suppliers of respiratory assist devices with backup rate 
will not be significantly affected by this final rule.

C. Impact on Rural Areas

    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis if a rule may have a significant impact on the 
operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. We are not preparing a 
rural impact analysis because we have determined that this final rule 
will not have a significant economic impact on the operation of a 
substantial number of small rural hospitals.

D. Unfunded Mandates

    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in expenditure in any 1 year by State, 
local, or tribal government, in the aggregate, or by the private sector 
of $110 million. This final rule will not have an effect on the 
governments mentioned, and private sector costs will be less than the 
$110 million threshold.

E. Executive Order 13132

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it publishes a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. We have determined that this rule does not significantly 
affect State or local governments.

F. Executive Order 12866

    In accordance with the provisions of Executive Order 12866, this 
final rule was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 414

    Administrative practice and procedure, Health facilities, Health 
professions, Kidney diseases, Medicare, Reporting and recordkeeping 
requirements, Rural areas, X-rays.


0
For the reasons stated in the preamble, the Centers for Medicare & 
Medicaid Services is amending 42 CFR part 414 as follows:

PART 414--PAYMENT FOR PART B MEDICAL AND OTHER HEALTH SERVICES

0
1. The authority citation for part 414 continues to read as follows:


[[Page 4525]]


    Authority: Secs. 1102, 1871, and 1881(b)(1) of the Social 
Security Act (42 U.S.C. 1302, 1395hh, and 1395rr (b)(1)).


0
2. In Sec.  414.222 paragraph (a)(1) is revised to read as follows:


Sec.  414.222  Items requiring frequent and substantial servicing.

    (a) Definition. * * *
    (1) Ventilators (except those that are either continuous airway 
pressure devices or respiratory assist devices with bi-level pressure 
capability with or without a backup rate, previously referred to as 
``intermittent assist devices with continuous airway pressure 
devices'').
* * * * *

(Catalog of Federal Domestic Assistance Program No. 93.774, 
Medicare--Supplementary Medical Insurance Program)

    Dated: April 7, 2005.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: August 10, 2005.
Michael O. Leavitt,
Secretary.

    Editorial Note: This document was received at the Office of the 
Federal Register January 24, 2006.
[FR Doc. 06-798 Filed 1-26-06; 8:45 am]
BILLING CODE 4120-01-P